Industry News

West end office news 7th April 2016

Total West End office occupation costs, which include rent, business rates and service charges, for new, prime located, Grade A space have risen by up to 16.1% since Q1 2015 to £217.75 per sq ft, according to Carter Jonas.

By contrast, City core office occupancy costs for mid-rise, new, Grade A space, have risen by up to 10.5% during the same period and now stand at £113.25 per sq. ft. Over the last twelve months the gap between total occupancy costs in the City and West End sub-markets has widened from £85.00 per sq. ft. to £104.50 per sq ft.

Michael Pain, Head of Carter Jonas’ London Tenant Advisory Team, said: “Increasing occupation costs in the West End are in part responsible for the eastward and southward migration of some tenants towards the City, City fringe and South Bank. As a consequence, increased demand for these areas has placed upward pressure on rents and a narrowing of rent free periods in these, hitherto, lower cost locations.

“Significantly, since Q1 2015, secondary City locations, including St Paul’s, Old Bailey and Blackfriars, have recorded rental increases of up to 25% for new or refitted Grade A space, as West End occupiers, and those migrating from the prime City core, compete for more affordable space and drive rents up. The growth in rents for secondary City space is in contrast to the 14.8% rental growth in the prime City core over the same period.”

The east City fringe market witnessed the highest rental increase since Q1 2015 – up to 57%. Headline rents for new Grade A space are now up to £69.50 per sq. ft., as recently completed office developments set new rent benchmarks in areas such as Spitalfields.

Michael Pain added: “Previously, occupiers looked to the north City fringe as a lower cost alternative office location. However, over the past few years, demand from technology, media and creative businesses has gathered pace, fuelling the rise in office rents and significantly reducing the cost advantages of the area. As a consequence, some tenants have been focusing their searches for office space in the east City fringe in order to secure better value.”

Docklands continues to offer the lowest office occupancy costs of any Central London submarket, reflecting the fact that it does not suffer the same supply side constraints as other areas. Total occupancy costs for new and refitted Grade A space at Canary Wharf are now up to £82.56 per sq. ft., notwithstanding that rents for new space have reached £50.00 per sq. ft. - a post banking crisis high.

Pain concluded: “Docklands remains the last submarket where it is still possible to secure 24 months’ plus rent free on a ten year lease. As with the north and east City fringes, the cost advantages of the area are likely to become eroded over time.

“The completion of the Elizabeth Line in 2018 will improve accessibility to the lower cost Docklands office market and is likely to reinforce demand for office space in the area, particularly from occupiers migrating from the more expensive West End and Midtown sub-markets.”